Should we end financial aid to 'developed' countries?

11 Nov 2012

Justine Greening, the government’s international development secretary, said last week that the UK is planning to end financial aid to India by 2015. The UK will stop the support of about £200million in three years and instead offer ‘technological assistance’. Ms Greening argued that the proposal reflected India’s growing economic progress and increasing status on the global stage.
India is a middle-income country (MIC) and has more billionaires than the UK. However, there are more people in abject poverty in India than in the whole of sub-Saharan Africa. Per capita gross national income in 2009 was £725 compared with £25,509 in the UK. There are hundreds of millions of people in poverty in India, is it therefore right that the UK ends financial aid to India?

 

The move has been welcomed by some Conservative MPs, who have criticized giving aid to growing economic nations when Britain is making savings due to austerity. Furthermore, India itself gives foreign aid to other nations, which stood at more than £300million in 2008. India is more than capable of being a world power; it has its own space programme after all and plans to spend billions on defence spending. As an independent nation and growing economic power, why can’t India look after itself and its people?

Of course, suggesting that India no longer needs help is misguided. Wealth disparities on Earth are the highest they have ever been. 72 per cent of the world’s poorest people live in middle-income countries, defined by the World Bank as earning less than 77pence a day. There are 450 million poor people in India, the majority of which are of a lower caste*. Just because India is a growing economic power does not necessarily mean that its wealth disparities will decrease. 

According to a report by the World Bank in 2009, India’s capacity for wealth distribution remains extremely limited. The report suggested that even a 100 per cent marginal tax rate on Indian earnings would only decrease the poverty gap by 20 per cent. The most important argument for continued aid to India is that a third of the world’s poor live there.

It is not just India that the UK has proposed to end direct aid to. 16 other countries, including Vietnam, Serbia, Iraq, Niger, Bosnia, China, and Russia, are to have their aid reduced. The UK will still give around £80million worth of financial aid to India.

For us, as a first-world nation, to suggest that we should end aid to the poorest people on Earth in order to relieve ourselves from the burden of austerity may be seen as a disgrace. Analysing our own economic situation, however difficult a situation we may be in, the UK is far better off than that of India. The ending of aid to India stimulates further questions and challenges we have to face as a country and as part of an international community, if we are to bring millions out of poverty around the world.

Should we end financial aid to developing countries? We may have to change how we go about it, for example, giving financial support to charitable agencies that directly work to help the poor, so that we can ensure the aid is going to the right people. But we have huge hurdles to overcome and we cannot become so accustomed to the images of abject poverty that we forget something needs to be done.

*The caste system in India places people in occupational groups ranked in hierarchical order; which are an aspect of the Hindu religion (other religions in India do not follow this system).

Backbench Chancellor

 

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